When economic times get tough, businesses and consumers usually take a more cautious approach to their finances, particularly concerning expenses. Tightening controls around spending is a prudent measure, and with the right approach it doesn’t have to be all about cost cutting.
Coupa’s APJ SVP Mark Innes offers measurable strategies for cost control in a downturn.
The cost of living in Australia has increased due to inflation, geopolitical unrest and volatility. Fuel and energy prices have soared, adding to operating costs for businesses. Meanwhile, the Reserve Bank of Australia has repeatedly raised the cash rate target leading to higher repayments for business loans and mortgages.
While some organisations like Deutsche Bank forecast a recession for Australia in 2023, the International Monetary Fund says we’ll still be able to avoid it but has urged the government to raise rates, curb spending and reform taxes to stay on track.
China’s growth has slowed, and the UK, Europe and the US are already in recession or heading close to one in the year ahead. Even if Australia becomes the lucky country once more, we’ll likely suffer from the flow-on effects of the global slowdown in economic growth.
Now is a good time for businesses to consider taking greater control of expenses. Here are several measurable strategies businesses can implement to find extra value in a downturn.
A measured response to tightening business spend
The 2022 Business Spend Management (BSM) Benchmark Report from Coupa provides 20 community-powered KPIs for best-in-class performance across seven critical categories of spend management. The report is based on analysis of almost $4 trillion in anonymised transactions conducted on the Coupa platform by 2500+ organisations and 8 million suppliers, globally. The benchmarks throughout the report represent the median value for the top 25 percent of companies and give businesses an indication of how their own performance measures up.
While the full report provides insights into all aspects of business spending, here are five areas where companies can increase controls to help in challenging economic conditions.
1. Implement or expand structured spend
Structured spending describes when companies create a supplies catalogue hosted on their systems or through a vendor. The current benchmark says top businesses direct 64.8 percent of overall spend through structured catalogues.
By purchasing through key suppliers, your business can benefit from greater efficiency and lower prices through bulk purchasing, avoid ad-hoc purchases and keep your supplier list tight for ease of invoicing and communication.
2. Nominate your primary suppliers
Consolidate business spend with primary suppliers and reduce the number of outliers.
Top performing companies spend 80 percent of their total spend across 19.9 percent of their suppliers.
Tail suppliers, or suppliers that receive little spend from an organisation, are usually niche suppliers for important goods and services or duplicate suppliers in a category that isn’t managed correctly. Spending with these suppliers means losing out on benefits with a consolidated supplier elsewhere.
3. Become a stickler for on-contract spending
While setting up pre-negotiated contracts can take some time, the benefits are clear. It reduces the financial risks around supplier liability, and you can negotiate better prices and terms with greater spend to help improve your cash flow.
The benchmark for on-contract spending shows that top companies channel at least 79.2 percent of their spend through pre-negotiated contracts.
You can start by implementing a sourcing strategy across business spend categories that deliver the most value to your business. Ensure each of those suppliers has contracts in place with negotiated prices and terms. Once finalised, implement them quickly through your systems and ensure the goods and services are easy for your employees to find.
4. Boost your levels of pre-approved spend
A pre-approved spend or expense is one linked to an approved purchase order. Purchase orders help finance teams see the pipeline of committed expenses that aren’t yet invoiced. This allows them to manage accrual estimates better and decrease the amount of fraudulent invoicing.
Pre-approved spend helps track each category against the budget and allows for greater controls to make sure spend goes through negotiated contracts with lower prices or better terms. The benchmark for top companies is 95.3 percent of spend linked to approved purchase orders.
5. Automate checks with expense reports
Smarter expense management can help reduce spending with non-approved suppliers, ensure compliance with policies, and drastically improve efficiency by reducing manual labour. The less time it takes to process expense reports, the more budget control you can have. The benchmark is an average of 6.5 hours for top companies to approve expense reports once in their system. Beyond just approving them quickly, expense reports also need to be correct to ensure submissions comply with policies.
Use digital systems rather than paper-based or spreadsheet systems to speed things up and boost accuracy. Digital receipt capture saves much processing time, while AI tools can read content, auto-populate categories and fields and highlight any non-compliance in seconds. Currently, top companies have a 98 percent hit rate for expense reports that fall in line with policy.
When it comes to business spending, digitising processes will help you gain efficiency, greater control and more insight into how your business spend is tracking. Check for any business technology rebates or tax deductions available in your state, such as the Technology Investment Boost announced by the federal government in August 2022. These rebates can help with the costs of going digital and investing in business technology.
Putting greater business spending controls in place doesn’t have to mean missing out on what you need to run the business. Finding the right balance comes down to making sure your business can spend smarter.